Bad results for another Wilbur Smith toll traffic & revenue study

In an Atlantic Cities article entitled, "Why Are HOT Lanes Struggling to Make Money?," Eric Jaffe reports, 

If you're a commuter in one of the increasing number of major metro areas that have implemented HOT lanes — express tolls for single-occupancy vehicles — you might already know how effective they can be for bypassing traffic. But these lanes were also promised to the public as a new road funding mechanism, pitched as a way to pay for long-delayed road maintenance or big public projects. In that regard, you might say that so far HOT lanes have come up rather cold.

The poor revenue performance of express tolls, while perhaps not universal, has certainly formed a disturbing trend. According to news reports, Virginia's new HOT lanes on Washington, D.C.'s Beltway lost $11.3 million in their first six weeks, Houston's I-45 and U.S. 59 express lanes haven't covered their costs, and Atlanta's I-85 tolls fell short of the lowest fiscal forecasts. The most egregious offender may be SR-167 in metro Seattle, whose actual earnings fall consistently and astonishingly below revenue expectations:

 

And, yes, you guessed it:  The pathetic "actual' HOT lane toll revenue performance in this graphic is tracked against several projections laid out by Wilbur Smith Associates, now CDM/Smith, in a 2006 traffic and revenue analysis for the state of Washington.  And this is one we hadn't examined in our detailed assessment of WSA's forecasting record two years ago. The article (link in first line) details some of the reasons why this forecast failed abysmally. 

It certainly doesn't inspire much confidence in CDM/Smith's most recent study for the Dulles Toll Road, which already projects tolls skyrocketing to more than $18 one way.

Its noteworthy that CDM/Smith is not alone:  Transurban, which just built the I-495 HOT lanes in northern Virginia, seems to be having the same problems--and its efforts have all been since the Great Recession.

Why do people believe this toll road traffic and revenue forecasts--EVER???

UPDATED: More Bad News for Toll Road Forecasts: Orange County (CA) Toll Roads

 UPDATE:  Planetizen has more on the Orange County toll roads.  Here's the lede:

Two southern CA toll roads are so severely underperforming that the state treasurer is investigating whether the bondholders can be paid their interest. The San Joaquin Hills toll road's bonds are rated at junk status. Widening I-5 & 405 didn't help.

Here's a link to the post.  

Los Angeles Times, December 11, 2012

Orange County toll roads under review by California

With ridership and revenue on Orange County's toll roads falling short of projections, the state of California has launched a formal inquiry into their economic viability.

A view looking west from Aliso Viejo at the San Joaquin Hills Transportation corridor toll road where it crosses El Toro Road and snakes up the hill in Laguna Beach towards Newport Beach and Irvine. The photo was taken in 2004. (Don Kelsen / Los Angeles Times / February 19, 2004)

 By Dan Weikel

When it opened during the 1990s, Orange County's $2.4-billion tollway system was touted as an innovative way to build public highways without taxpayer money.

Today, the roads offer smooth sailing for gridlock-weary commuters willing to pay the price. But far fewer people are using the turnpikes than officials predicted, which means the highways generate far less revenue than expected to retire their debts.

There have long been questions about the long-term financial viability of the San Joaquin Hills and Foothill-Eastern corridors. But those concerns have now heightened, and a government oversight panel chaired by state Treasurer Bill Lockyer has launched a formal inquiry into whether the roads can cover mounting interest payments to private investors who purchased tollway bonds. . .

To meet expenses and debt payments, the corridor agency has refinanced the San Joaquin Hills bonds, raised tolls more than originally planned, slashed administrative costs and obtained repayment concessions from bondholders. Early next year, officials plan to refinance about $2.4 billion in notes issued to build the Foothill-Eastern tollway.

In 2011, ridership on the San Joaquin Hills, which has never performed as predicted, was only 43% of original forecasts, and its revenue was 61% of projections. The road parallels the Orange County coast, slicing south from Irvine through Newport Beach, Laguna Beach and Aliso Viejo to the San Diego Freeway.

Motorists on the Foothill-Eastern last year numbered 33% less than projected, and revenue was 75% of forecasts. Previously, the part of the corridor between Yorba Linda and Rancho Santa Margarita had a revenue surplus and ridership that was often 8% to 10% ahead of projections. The extra money was used to help shore up the finances of the San Joaquin Hills road. . . .

Click here for the rest of this lengthy and alarming article.  

The forecasts for both of these tolls roads were prepared and revised by Wilbur Smith Associates, now CDM/Smith, the company that has prepared three similar forecasts for the Dulles Toll Road.   An excellent article in TollRoadsNews (May 15, 2012) shows that, over a 15-year history, the forecasts for the Foothill-Eastern toll road went from on target to off by 25% after the recession hit in 2007.  The forecasts have never been close for the San Joaquin Hills toll road.  The article shows the annual results for the two toll roads and discusses the possible causes for the errors.

Given the history of experience with the two toll roads, the LA Times report raises questions anew about the viability of the latest CDM/Smith Dulles Toll Road traffic and revenue forecast.    Will the already outrageous forecast tolls have to go higher if CDMS has over-estimated traffic on the toll road?  So far, CDMS' latest traffic forecast has been very close to the mark--as it should be in forecasting behavior on a toll road that has been in operation for two decades.  It is unclear why the experience in Orange County hasn't led to forecasts with lower traffic and revenue outcomes.

It is a cause for worry about future toll increases on the Dulles Toll Road. 

Feasibility Studies Rarely on Target, But Do Investors Know?, Bond Buyer, August 22, 2012

Looking at the second financial failure of the Pocahontas Parkway in a half-dozen years, Kyle Glazier reports in Bond Buyer on the continuing problem with inaccurate traffic and revenue (T&R) feasibility studies.  The article notes that the Pochahontas failures--based on a Wilbur Smith & Associates T&R study (now CDM Smith)--are just the latest in a long line of bad forecasts leading to bad results.  The article provides an excellent overview of the wide variety of causes for these forecasting and performance failures.  Here are some excerpts:

As industry participants know all too well, revenue forecasting, an inexact science at best, can either make or break the toll road and public-private partnership projects that are sprouting up all over the country.

One need look no further than the 8.8- mile Pocahontas Parkway near Richmond, Va., to see how an inaccurate feasibility study wreaked financial havoc upon two private companies and raised questions about the viability of the toll road project. . .  

. . . The story of a traffic and revenue, or T&R, study seemingly viewed through rose-colored glasses has become a familiar one to industry leaders, financial advisors and public advocates keeping an eye on infrastructure finance trends.

Neil Gray, director of government affairs at the International Bridge, Tunnel and Turnpike Association, said the issue is attracting more and more attention.

"A recurring theme over the last couple of years has been why are T&R studies always so wrong?" he said. . .

. . . The firms conducting the studies, toll industry members and credit analysts are all aware of how frequently feasibility studies miss the mark, but most of those projections still show potential issuers what they were hoping to see.

"The problem is exacerbated by the 'confidential' or 'proprietary' nature of the forecasts and methods that are developed for toll roads, and also by 'optimism bias' on the part of the sponsor, local elected officials or other advocates of the proposed toll road," the NCHR report states.

Gray agreed, saying, "Historically, you don't get a lot of negative answers." . . .

. . . "It is important for issuers and investors to understand among other things that, at times, there are no published professional standards applied by the experts and that the experts use assumptions given to them by others without reaching their own professional judgments whether the assumptions are reasonable." Doty said.
Mwalwanda said traffic and revenue estimates should be viewed as a range of possible outcomes and not a concrete forecast.

Meanwhile, critics of toll roads fear that, for some forecasters, the desire to produce favorable revenue estimates will outweigh the necessity to produce accurate estimates.

 Click here for the full Bond Buyer article.  

Review of CDM Smith's Traffic & Revenue Forecast by DOT OIG and RCA Reston 2020

 “Our preliminary assessment of Dulles Toll Road revenue estimates suggests that the assumptions MWAA used to arrive at the estimates are generally reasonable. MWAA plans to finance almost two-thirds of Phase 2 of the Dulles Corridor Metrorail Project with revenue from the toll road, which it operates following a 2008 transfer agreement from the Virginia State DOT. Because MWAA’s Phase 2 funding depends heavily on the revenue the toll road can produce and sustain, sound revenue forecasts are critical to the success of MWAA’s funding plans. Our review focused on the inputs and assumptions used in forecasting toll receipts in a March 2012 report commissioned by MWAA.

“MWAA’s population and employment forecasts and gasoline price assumptions appear reasonable. While MWAA’s method for estimating values of time (VOT) does not follow typical practice, the resulting assumptions appear reasonable. We also identified factors that help explain an increase between two Dulles Toll Road studies in the toll projected to maximize revenue.”

US DOT Office of Inspector General Preliminary

            MWAA Audit, May 15, 2012, pp. 12-13.

The above opens the section of the US Department of Transportation’s Office of Inspector General preliminary MWAA audit report on the most recent forecast for tolls, traffic, and revenues for the Dulles Toll Road.  While the media has so far has focused on the first half of this report that focuses on MWAA’s faulty management practices, this second part of the report is far more important in understanding the implications of the current funding arrangements for the Silver Line’s construction on future toll road use and the economic growth of the Dulles Corridor.  For the record, however, the traffic and revenue forecast was prepared by CDM Smith (CDMS)—formerly Wilbur Smith & Associates (WSA)—for MWAA, not by MWAA itself. 

Most importantly, RCA’s Reston 2020 Committee generally agrees with the DOT OIG audit, although we have taken our analysis further to look at the risks.  In fact, we came to this conclusion in early March 2012 in a committee meeting where we reviewed our analysis of the most recent (CDMS) forecast. 

We prepared a draft presentation concerning the report, but decided not to publish it until now because (a) CDMS was supposed to complete its report within weeks, and (b) we anticipated that DOT OIG would be examining it as well.  We simply decided to wait. 

• The DOT OIG preliminary report was published yesterday with its summary discussion of the latest version of the CDMS Report.

• We are still waiting for release to the public of the latest version of the CDM Smith forecast—a March 2012 version entitled “The Comprehensive Traffic and Revenue Study 2012 Update Working Draft,” according to the DOT OIG audit.  That March 2012 version has not been made public to our knowledge, a part of MWAA’s continuing problem with transparency. 

Our judgments were based on the January “Executive Brief and Preliminary Results, CDM Smith, January 2012.” That draft presentation—with minor editorial correction, but no analytic changes—is presented below in its “draft” format.  Based on the DOT OIG commentary, we do not expect to see significant changes in the March (or later) versions of the CDMS traffic and revenue report. 

Without detailing our analysis in this brief post, we present below the conclusions and the chart that highlights those conclusions.

• We expect population and employment growth will be slower and gasoline price escalation higher over the next 40 years than CDMS & RPG forecast.
• Our results suggest the likelihood of revenue shortfalls in every year and growing to 25% by the end of the 40-year forecast period.
• The odds are two-to-one that the annual forecast revenues are not achieved (67%) at the end of the forecast period.
• Projected annual revenue shortfalls grow to more than $130MM late in the forecast period.
• The cumulative revenue shortfall is likely to be about $1.7 billion over 40 years—about one-tenth of total forecast revenues.
• All of this assumes project and financing costs do not increase after the preparation of the CDMS T&R forecast.

These conclusions are generally depicted in the following chart from the draft presentation:

In our view, this forecast is “generally reasonable” in that it captures nearly 90% of the expected revenues over a four-decade period.  That said, the likelihood that tolls will need to be higher by 10% or so against knowable forecast variables and there are no doubt other costs that cannot yet be foreseen means that tolls are likely to be significantly higher than CDMS’ forecasts in the long term.

CDMS’ T&R Forecast and R2020 Alternative--FINAL DRAFT

Knik Arm bridge debate runs into Senate roadblocks, Anchorage Daily News, March 27, 2012

This Anchorage Daily News article reports Alaskan Senate concerns about the traffic and revenue forecasts by CDM Smith--formerly Wilbur Smith & Associates--for the Knik Arm Bridge connecting Anchorage to Mat-Su.  The article highlights issues about its use of socio-economic projections and its spotty record elsewhere in providing accurate forecasts.  It may be a lesson we need to appreciate if Dulles Toll Road tolls are expected to be the principal source of funds for the Silver Line since CDM Smith and its predecessor have made similar forecasts here. 

By LISA DEMER

Legislation to push along the billion-dollar Knik Arm bridge is encountering trouble in the state Senate though it cleared a key House committee last week.

The bridge is "a mega-project" and backers should be coming forward with more detailed financial information, Sen. Bert Stedman, R-Sitka and chairman of the Senate Finance Committee, told bridge supporters testifying Monday.

Senators on the Finance Committee are raising concerns about how the project will be financed, the amount of state subsidies needed, and whether consultants on the project have provided accurate projections of traffic and population growth. . . .

Click here for the rest of this comprehensive news report.  

Dulles Toll Road Estimates Disputed, The Bond Buyer, March 8, 2012

By Kyle Glazier

WASHINGTON — A dispute over the revenue projections for the Dulles Toll Road provides the backdrop for a hearing the Fairfax County, Va., Board of Supervisors is preparing to hold March 20 to decide whether to approve the next phase of construction on an associated rail line.

The revenues will back the bonds used to help finance the construction of the transit rail line.

Terry Maynard of the Reston Citizens Association, of Reston, Va., released a study in late January that was critical of the toll road revenue projections produced during the past few years by CDM Smith on behalf of the Metropolitan Washington Airports Authority.

The firm’s projections — issued in 2005, 2009 and 2012 — show much different levels of expected revenue. The 2005 projection shows the road collecting $141.7 million in toll revenue for 2020, while the 2009 study shows the same road generating $219.9 million that year. In the 2012 projection, the number is $256.6 million. . . .

.  .  .  The variation seen in the Dulles Toll Road projectons does not shock Standard & Poor’s analyst Todd Spence. “It’s not unusual,” he said. “It’s unfortunate.”

A January rating by S&P placed the road’s primary revenue bonds at BBB-plus, which Spence said “reflects our concerns associated with the Dulles Toll Road’s significant leveraging, MWAA’s reliance on continued revenue growth to support the debt levels, and the potential for cost overruns associated with the rail extension.” . . .

 Click here for the rest of this article.

RCA Questions Toll and Revenue Forecasts, Reston Connection, March 7, 2012